A grocery store in the basement of an unremarkable suburban mall in Shenzhen may not sound like one of Alibaba's hottest battlegrounds. But the e-commerce giant is using the store in the next phase of its expansion, aimed at transforming brick-and-mortar retail all over China.

Hundreds of people crowded the Alibaba-owned store, called Hema, on a recent Sunday. They used Hema’s mobile app on their smartphones to pay for purchases at unstaffed cashier stations. Or they used it to pay for meals at the store’s dining area, where they could buy live lobsters and have them cooked on the spot. Meanwhile, staffers in blue sweatshirts with a cartoon hippo—Hema’s mascot—ran around filling bags with items people had ordered online. The bags were whisked away on conveyer belts to be collected for deliveries.